Unchained, Ep. 922 — Crypto's Black Friday Was Its Largest Liquidation Ever. What the Hell Happened?

Release date: October 12, 2025
Host: Laura Shin
Guest: Dio Casaris, Founder of Clear Protocol & Advisor at Patagon Management

Episode Overview

This episode unpacks the unprecedented “Crypto Black Friday,” during which the crypto markets experienced $19 billion in liquidations within hours—described by guest Dio Casaris as “10 times worse than the FTX collapse.” Laura and Dio trace the events leading to the crash, discuss the interplay of market structure, derivatives (especially perps), market maker failures, and consider if the system is prepared for such shocks going forward. The episode combines market analysis, industry gossip, and critical insights into DeFi and CeFi infrastructure.

Key Discussion Points & Insights

1. Timeline of the Crash & Catalysts

• Escalating Trade War:
  • China announces new restrictions on rare earth exports—a response to US tech/trade policies (01:25).
  • Trump immediately retaliates by announcing 100% tariffs on China (01:25).
• Whale Shorting Before Announcement:
  • Dio notes massive, rapid, new whale short positions on hyperliquid, minutes before news broke—suggests inside information (01:25–01:45, 04:56).
  • “It’s very likely a case someone knew something… in general, the way it looks is that someone was kind of inside the information loop.” — Dio Casaris (04:56)
• Market Reaction:
  • Bitcoin price collapsed from $122,000 to $104,000 within 2 hours (01:25).
  • Altcoins were especially hard hit, some near zero (Adam), established coins like Solana dropped 40% (05:44).

2. Structure of the Liquidation Cascade

• Perp Order Books vs. Spot:
  • “This almost exclusively happened on the perp order books. It didn’t happen on the spot order books.” — Dio (06:16)
  • Dependency on a handful of market makers; when these get overwhelmed/out or fail, liquidity vanishes and prices collapse (06:16–07:49).
• Auto Deleveraging (ADL):
  • Exchanges triggered overwhelming ADL, essentially shutting down large parts of trading and forcibly closing out positions to protect themselves, not traders (08:46–10:38).
  • Dio’s analogy: “If the guy next to you blows up and goes bankrupt, you have to pay some chips because he still technically owes the bank some money. This is like a very aggressive equivalent of that.” (08:46)

3. Market Maker (MM) Failure and Infrastructure Breakdowns

• Why Altcoins Crashed So Hard:
  • Alts depend on few MMs—some MMs blew up, others couldn’t place bids due to exchange-level risk controls. No bids = price collapse (06:16–07:49).
  • “If you look at resolve and some of these… their entire hyperliquid account got evaporated and all the coins they were market making basically almost went to zero.” — Dio (06:58)
• Not Always a Skill Issue:
  • “In the case of most of the market makers, though… they couldn’t really place bids or asks during that timeframe.” (10:21)
  • Massive liquidations overwhelmed even the biggest traders and liquidity providers (10:45–12:15).
• Tech Failure:
  • Front-ends, wallets (Rabi, DeBank), and RPC endpoints for chains like Solana failed for hours, making price discovery and execution temporarily impossible (35:34–37:10).

4. Excess Leverage and Incentives

• Overleveraged Market:
  • Dio cites record-high open interest in alts and “catalyst hunting” by degens who expected perpetual upside, fueled by rumors of new demand (13:07).
  • “People just weren’t ready for it. Especially on a Friday, the liquidity is already not that great.” (13:07–14:55)
  • Funny quote from Jordy Alexander showing absurd justifications for trades:
    “Did you know that CZ’s gardener’s dog is called Asterisk? Time to bet on that shit. It’s BSC season.”
• Perp (Derivatives) Meta:
  • Perp DEXs and CEXs have become fragmented and highly competitive—leading to “phantom” open interest and data opacity (22:18).
  • “Now none of the exchanges really… you don’t have like a heat map of where all the liquidations will happen on every exchange.” (22:18)
  • Outcome: Panic, overreactions, and exchanges liquidating rapidly to protect their own balance sheets.

5. Differences Between Platforms

• Platform-Specific Management:
  • Hyperliquid had no downtime but extensive ADL (15:16).
  • Bybit, Binance, and others had partial shutdowns, possibly triggered by internal MM desks getting caught on the wrong side or being overloaded (18:27–20:10).
  • Some compensation announced, but users dissatisfied.
• DeFi Protocols:
  • AAVE, Athena, and others managed record-breaking liquidations properly, but also got lucky as hard-coded oracles prevented devastating cascades (29:45–32:16).
  • Athena’s sophisticated rebalancing approach meant they avoided ADL and added collateral for resilience (32:16–34:04).
• Key Winner:
  • “On just the tech side, it’s objectively very impressive that hyperliquid had no serious downtime. So if you’re someone that trades very, very actively or systematically, that’s probably a big sign to you… Binance and Bybit basically weren’t a good platform for you.” — Dio (49:25)

6. Lessons Learned and Next Steps for the Industry

• ADL Used as a Nuclear Option:

  • Traditionally thought of as rare, now shown to be used rapidly and across the board, affecting even those in profit (41:00+)
  • Dio argues exchanges, given their massive profits, should provide more user protection by absorbing risk, not defaulting to ADL instantly (40:19–44:58).
  • “A big, an interesting question to be posed to like all the exchanges is they all make billions of dollars a year on perps platforms or derivatives… people are going to remember which platforms… screwed them over versus the platforms that they felt gave them better execution.” — Dio (38:02)

• Need for Transparency and Structural Reform:

  • Market participants need to study how different venues manage shocks; nuances in ADL policy and MM structure could decide who survives the next crash.
  • Dio floats the idea of exchanges maintaining risk funds and communicating clear policy, though he admits it’s a complex tradeoff (42:23, 44:58).
  • “I think probably there will be a much larger derivatives crash in crypto in the future… At that point, it’s just going to happen.” — Dio (43:39)

• Behavioral, Not Just Technical, Impacts:

  • Venue choice matters more than ever; exchanges’ responses to crises may determine trader loyalty and even industry leadership (49:25–52:18).

Notable Quotes & Memorable Moments

• “I think it’s something like 10 times worse than the FTX collapse, which is pretty astounding if you think about it.”
  — Dio Casaris (00:00 & 01:25)

• “It’s very likely a case someone knew something… someone was kind of inside the information loop.”
  — Dio Casaris (04:56)

• “This almost exclusively happened on the perp order books. It didn’t happen on the spot order books.”
  — Dio Casaris (06:16)

• “The infrastructure in crypto just failed.”
  — Dio Casaris (26:59)

• “You should just kind of try as much as you can to understand the risks your exchange has.”
  — Dio Casaris (52:18)

• “I haven’t seen anything this aggressive since [the FTX collapse].”
  — Dio Casaris (00:00 & 53:38)

• Jordy Alexander’s satirical take:
  “Did you know CZ’s gardener’s dog is called Asterisk? Time to bet on that shit. It’s BSC season.” (12:15)

Timestamps for Important Segments

• 00:00 — Dio summarizes crash scale vs. FTX; infrastructure failed
• 01:25 — Timeline: China/US trade war, tariffs, whale shorts
• 04:56 — Suspicions of insider trading with pre-announcement shorts
• 06:16 — Why altcoins crashed; the vulnerability of perp order books
• 08:46 — ADL explained with “Vegas blackjack” analogy
• 15:16 — Comparison: Hyperliquid/Dex vs. CEX downtime and strategies
• 18:27 — Why Binance, Bybit, and others briefly shut down
• 22:18 — Fragmented perp markets, phantom open interest
• 29:45 — DeFi response and the significance of hard-coded oracles
• 35:34 — Tech failures: Wallets/RPCs/price discovery issues
• 38:02 — Industry lessons: Designing better risk management, user protection
• 49:25 — How to choose a trading venue after the crash
• 52:18 — Final thoughts: Who won, who lost, and what users should now value

Winners, Losers, and Looking Forward

• Technical winners: Hyperliquid (no downtime), DeFi protocols like AAVE.
• Market makers: Major MM casualties likely; names floated: Jump (rumored $1B loss), Cellini, Wyndham Reed.
• Platform reputations: Bybit, Binance, and others will be judged by their handling of ADL, customer support, and compensation.
• Industry at a crossroads: Exchanges must reconsider how they balance profit, user protection, and systemic risk.
• Future risks: Perp meta, leverage, and fragmented information predict more frequent and possibly larger shocks in the future.

Takeaways

Crypto’s “Black Friday” showed that even fundamentally sound markets are vulnerable to infrastructure and design flaws during periods of stress. ADL, once theoretical, is now front-of-mind, and venue selection has never mattered more. As derivatives become more pervasive, both traders and exchanges must rethink their strategies—or risk being the next black swan casualty.